Microsoft Office Tutorials and References

In Depth Information

**IRR**

Figure 6.20

Use
IPMT
to determine

the interest payment for

a period of time based

on an investment with

periodic constant

payments and a

constant interest rate.

A

The function

built with cell

referencing

IRR
IRR
returns the internal rate of return for a series of cash flows represented by numbers in

the form of values.

=IRR(values,irr,guess)

The
IRR
function is used to determine the internal rate of return for a series of cashflows. The

cashflows can var y and do not have to be equal, however, they must occur at equal inter vals.

See also,
NPV
. Figure 6.21 shows that the investment in the business is $100,000. The series of

cash flows you expect to receive within the next five years, or return on investment is $20,000,

$30,000, $35,000, $40,000, and $45,000. Based on the 5-year cash return, the ROI is 18%. The

ROI after 3 years is –7%. The breakeven point falls between years 3 and 4.

The values must contain one positive and one negative value to calculate the

internal rate of return.

VALUES

The order of cash flows is determined by the order of values, so be sure to

enter your payment and income values in the proper sequence.

IRR

This is the number you guess is close to the
IRR
.

GUESS

Figure 6.21

IRR
generates the

internal rate of return

for cash flows in a

series represented by

numbers in the form of

values.

A

The function

built with cell

referencing